Monday, January 8, 2007

Vietnam Money-Dong rates up, dollar in surplus

Vietnamese banks have increased the lending rates for the Vietnamese dong due to higher demand for cash prior to a major national festival, but liquidity remains good, bankers said on Monday.

Vietnam's four state-run banks, the country's key lenders, raised overnight dong loan rates to 8 percent on Monday, from 7.2-7.5 percent a week ago . The six-month loans firmed to 9.0-9.6 percent, from 8.6-8.8 percent in mid-December.

Companies pay bonuses and consumer spending on home appliances often rises at this time of the year, pushing up demand for the Vietnamese dong in cash about a month before Vietnam's Lunar New Year festival on Feb. 16-19.

But the dong liquidity has been good as banks had prepared for the expected higher demand. Deposits raised last year by banks in Hanoi alone jumped 32 percent on 2005 to 232 trillion dong ($14.4 billion), industry reports show.

Meanwhile, a Finance Ministry plan to raise 22 trillion dong ($1.4 billion) this year from selling government bonds for transport and irrigation projects would reduce the funds held by the public.

Vietnam aims to keep its level of investment unchanged at 40 percent of its gross domestic product this year as it targets economic growth of up to 8.5 percent.

Meanwhile, the dollar supply has been ample in the banking system thanks to higher inflows of foreign investment and overseas remittances, while the central bank did not buy much, bankers and officials said.

"The central bank has been buying little. That has led to a surplus of foreign currencies in banks," Le Thanh Hang, deputy general director of state-run Agribank, was quoted by state media as saying at the weekend.

The money sent back to Vietnam last year by overseas Vietnamese and also Vietnamese labourers working abroad rose 6 percent to an estimated $4.7-4.8 billion, the Committee for Overseas Vietnamese said last week.

The dollar supply has kept the dollar/dong exchange rate stable even as the central bank has doubled the dollar's trading band on the domestic interbank market to 0.5 percent of the official exchange rate it sets daily.

On Monday the dollar was quoted at 16,050/16,060 dong on the interbank market, below the official rate of 16,112 dong which is 0.07 percent lower than the rate at the end of 2006.

By the end of 2007 the central bank would allow the dong to ease 1 percent to maintain export competitiveness, Truong Van Phuoc, director of the central bank's Foreign Exchange Management Department, was quoted on Monday by state media as saying.

The dong eased 1.44 percent against the dollar last year.

Sourse: Reuters

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